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Replacement Arbitrator | Does Section 5 Authorize Replacement of Deceased Arbitrator? | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice

May 5th, 2020 Application to Appoint Arbitrator, Arbitration and Mediation FAQs, Arbitration Law, Arbitration Practice and Procedure, Arbitrator Vacancy, Death of Arbitrator, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 5, Marine Products Rule, Nuts & Bolts, Nuts & Bolts: Arbitration, Party-Appointed Arbitrators, Pre-Award Federal Arbitration Act Litigation, Section 5, Small Business B-2-B Arbitration, United States Court of Appeals for the Eighth Circuit, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit 2 Comments » By Philip J. Loree Jr.
Section 5 Death of Arbitrator

The last instalment of this post discussed how arbitrator selection and arbitrator appointment works in practice. This segment addresses the FAQ “Does Section 5 of the Federal Arbitration Act Authorize a Court to Appoint a Replacement Arbitrator if an Arbitrator on a Three-Person Panel Dies Prior to the Panel Making an Award?”  

Does Section 5 of the Federal Arbitration Act Authorize a Court to Appoint a Replacement Arbitrator if an Arbitrator on a Three-Person Panel Dies Prior to the Panel Making an Award?

Under Second Circuit authority courts are not permitted to appoint a replacement arbitrator on a three-person panel if an arbitrator dies prior to the panel making a final award. The arbitration must start anew before a new panel.

If an arbitrator dies prior to the panel making a partial final award, then the original award stands, but the parties are required to constitute a new panel to arbitrate the issues that the partial final award did not resolve.

It is unlikely that Courts in the Seventh and Eighth Circuit will adopt this rule, and whether any others will adopt remains to be seen.   

Section 5 and Death of an Arbitrator

Section 5 expressly authorizes courts to appoint a replacement arbitrator where there is “a lapse. . . in filling a vacancy. . . .” If an arbitrator dies before making a final award, then there is certainly “a vacancy” that needs to be “fill[ed].” 9 U.S.C. § 5.

Generally, either one arbitrator, or a panel of three, preside over an arbitration. If an arbitrator serving as a sole arbitrator dies, then certainly a court or the parties can replace him or her.

But, as a practical matter, the proceedings are going to have to start afresh, because the new arbitrator knows nothing of the case.

While the parties may be able to recycle the fruits of the parties’ discovery, motion practice, pre-hearing submissions, and other work product, the parties still have to go through the process of educating the arbitrator and, in doing so, they may determine that they want to present arguments in different ways or perhaps even make different arguments, all of which are tailored to the new arbitrator, who may have a different background and perspective than the deceased arbitrator had. 

The dynamic is different in cases involving tripartite panels, especially where each party has selected its own arbitrator, and one of the party-appointed arbitrators passes away. Where a party or court fills a vacancy on a three-person panel in an ongoing arbitration proceeding, it is easier for the arbitration to continue to proceed once the new arbitrator is in place.

But a replacement arbitrator appointed to serve after proceedings have been underway for some time may be at a significant disadvantage in terms of his or her ability to persuade the other two arbitrators that the outcome the replacement arbitrator may prefer is the better one. The other two arbitrators, including the neutral, third arbitrator or umpire, have already been working together, and the other side’s party-appointed arbitrator may thus have a potential advantage over the newcomer in terms of being able to influence the third arbitrator, and that advantage is no longer offset by the participation of the original party arbitrator, who is deceased.

Replacement Arbitrator: the Marine Products Rule

These considerations have prompted courts in the Second Circuit to adopt a “general rule” (the “Marine Products rule”) that “where one member of a three-person arbitration panel dies before the rendering of an award and the arbitration agreement does not anticipate that circumstance, the arbitration must commence anew with a full panel.” Trade Transport, Inc. v. Natural Petro. Charterers, 931 F.2d 191, 194-95 (2d Cir. 1991). That rule applies “[a]bsent any special circumstances.”  Marine Prod. Export Corp. v. M.T. Globe Galaxy, 977 F.2d 66, 68 (2d Cir. 1992); Ins. Co. of N. America v. Public Service Mutual Ins. Co., 609 F.3d 122, 123-24 (2d Cir. 2010)

According to the Second Circuit, “[t]he rationale behind the Marine Products rule is that it is unfair to require a party to continue an arbitral proceeding after its chosen arbitrator has died, because the party would be disadvantaged by having a substitute join the remaining panel members after they had ‘worked together and been exposed to each other’s influence,’ and after the deceased arbitrator has had some subtle and unknowable effect on them.” Public Service Mutual, 609 F.3d at 129-30 (quoting Cia de Navegacion Omsil, S.A. v. Hugo Nev Corp., 359 F. Supp. 898, 899 (S.D.N.Y. 1973)).

The rule’s premise is “that the unfairness to a party of having a substitute arbitrator appointed who will likely be disadvantaged because of his or her absence during previous deliberations outweighs the necessary waste and expense of commencing an arbitration completely anew.” Public Service Mutual, 609 F.3d at 130.

The Second Circuit has imposed some limitations on the rule. First, in cases where a panel member dies after an interim final award has been made, then the arbitration that led up to that interim final award need not be done over. Trade Transport, 931 F.2d at 192, 195.

Second, the rule applies only to situations where an arbitrator has died. Public Service Mutual, 609 F.3d at 129, 130. It does not apply to arbirator resignations, because doing so would facilitate manipulation, that is, a party encouraging its appointed arbitrator to resign to enable a “do-over” of an arbitration that is not progressing well for that party. Public Service Mutual, 609 F.3d at 130.  

The Marine Products Rule in the Seventh and Eighth Circuits

While the rule applies in the Second Circuit, at least two other Circuits, the Seventh and the Eighth, have indicated that they would likely not follow it. Both cases arose out of situations where an arbitrator had been resigned, so technically, neither case has held that the rule would not apply in a case involving the death of an arbitrator.

But dictum in both cases strongly suggests that those Circuits would not apply the rule even in a situation where an arbitrator had died. In WellPoint, Inc. v. John Hancock Life Ins. Co., 576 F.3d 643, 646-47 (7th Cir. 2009) (blogged here) the court “‘rejected Marine Products outright, stating that there was ‘no such inflexible and wasteful rule [requiring that a new arbitral panel be convened as a result of a vacancy] in the law of arbitration.’” Public Service Mutual, 609 F.3d at 130 (quoting WellPoint, 576 F.3d at 646-47).

And in National Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462, 465-66 (8th Cir. 2003), the court “similarly declined to adopt the Marine Products rule, noting that requiring a new panel to be commenced when an arbitrator resigns ‘would vitiate Section 5 [of the Federal Arbitration Act].’” Public Service Mutual, 609 F.3d at 130 (quoting Transamerica, 328 F.3d at 465-66).

Please note. . .

This guide, including the installments that will follow in later posts, and prior installments, does not purport to be a comprehensive recitation of the rules and principles of arbitration law pertinent or potentially pertinent to the issues discussed. It is designed simply to give clients, prospective clients, and other readers general information that will help educate them about the legal challenges they may face in arbitration-related litigation and how engaging a skilled, trustworthy, and experienced arbitration attorney can help them confront those challenges more effectively.

This guide is not intended to be legal advice and it should not be relied upon as such. Nor is it a “do-it-yourself” guide for persons who represent themselves pro se, whether they are forced to do so by financial circumstances or whether they elect voluntarily to do so.

If you want or require arbitration-related legal advice, or representation by an attorney in an arbitration or in litigation about arbitration, then you should request legal advice from an experienced and skilled attorney or law firm with a solid background in arbitration law.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, this article, or any other legal-related matter, please contact the author, Phil Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He has 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation. He is a former partner of the litigation departments of the New York City firms of Cadwalader, Wickersham & Taft LLP and Rosenman & Colin LLP (now known as Katten Munchin Rosenman LLP).

Loree & Loree represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and often serves as co-counsel, local counsel or legal adviser to other domestic, and international, law firms requiring assistance or support.

Loree & Loree was recently selected by Expertise.com out of a group of 1,763 persons or firms reviewed as one of Expertise.com’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.



         

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2 Responses to “Replacement Arbitrator | Does Section 5 Authorize Replacement of Deceased Arbitrator? | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice”

  1. Is the Second Circuit’s view coloured by the archaic US and maritime practice of the party arbitrator as quasi-advocate?

    When I had a stroke after a first partial Award was made, the ICC Court accepted a replacement engineer appointed by the party who appointed me. He read the papers and was ‘briefed’ by the other two arbitrators.

  2. Geoffrey,

    I hope you’re well.

    I think the rule reflects, to some extent, the traditional U.S. industry arbitration rule under which, absent an agreement to the contrary, party-appointed arbitrators are non-neutral. I successfully argued a couple of years ago the U.S. Court of Appeals for the Second Circuit rule that reaffirmed that presumption of non-neutrality in the Second Circuit, which had, up to that point, never ruled on it before.

    Nowadays, of course, most arbitration provider rules require party-appointed arbitrators to be neutral. But even then, as you know, people naturally try to select arbitrators whom they believe are more likely to be institutionally predisposed in favor of their view of the merits, and there is nothing wrong with that.

    Note, however, that while the Second Circuit adheres to the death of the arbitrator rule, it limits it to situations where the arbitrator dies, and even then, it doesn’t affect any previously made partial final awards or interim final awards.

    Phil

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